Mesenchymal stem cells (MSCs) are of particular interest for the treatment of immune-related diseases due to their immunosuppressive capacity. Here, we show that Small MSCs primed with Hypoxia and Calcium ions (SHC-MSCs) exhibit enhanced stemness and immunomodulatory functions for treating allogeneic conflicts. Compared with naïve cultured human umbilical cord blood-derived MSCs, SHC-MSCs were resistant to passage-dependent senescence mediated via the monocyte chemoattractant protein-1 and p53/p21 cascade and secreted large amounts of pro-angiogenic and immunomodulatory factors, resulting in suppression of T-cell proliferation. SHC-MSCs showed DNA demethylation in pluripotency, germline, and imprinted genes similarly to very small embryonic-like stem cells, suggesting a potential mutual relationship. Genome-wide DNA methylome and transcriptome analyses indicated that genes related to immune modulation, cell adhesion, and the cell cycle were up-regulated in SHC-MSCs. Particularly, polo-like kinase-1 (PLK1), zinc-finger protein-143, dehydrogenase/reductase-3, and friend-of-GATA2 play a key role in the beneficial effects of SHC-MSCs. Administration of SHC-MSCs or PLK1-overexpressing MSCs significantly ameliorated symptoms of graft-versus-host disease (GVHD) in a humanized mouse model, resulting in significantly improved survival, less weight loss, and reduced histopathologic injuries in GVHD target organs compared with naïve MSC-infused mice. Collectively, our findings suggest that SHC-MSCs can improve the clinical treatment of allogeneic conflicts, including GVHD.